The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.
Yay! Tax day has come and gone. It may have caught you by surprise this past year but it doesn’t have to be that way in the future. By just taking a few simple steps now, you can make you tax day in 2012 seem so much easier.
Tax Preparation Tip #1 – Change Your Number of Withholdings
If you were left with too big of a tax bill this past year, you may want to consider decreasing the number of allowances that you claim. This will increase the amount of money that comes out of your paycheck that goes towards your taxes. It will also lower the amount that you have to pay on April 15th of next year. You should also consider increasing the number of withholdings that you claim if your tax refund is significant.
Tax Preparation Tip #2 – Pay Your Estimated Taxes
Self employed individuals and contractors are responsible for paying their own taxes during the year. Sure, you can wait until April to pay, but if your tax liability is too large, penalties will be added to the amount that you owe. It is a punishment for holding out on them. A better solution is to pay your estimated taxes throughout the year. This way your liabilities are paid before April 15th and you can focus on just filing your return.
Tax Preparation Tip #3 – Consolidate Your Paperwork
If you were left dealing with too many statements over the past year, you can make things easier for yourself by consolidating your paperwork. I’d suggest picking a location right now to put all of the paperwork you will need next year. If you would like those papers to be even more organized, simply start a file folder for each type of statement. Remember to have one for any miscellaneous extras. You will be amazed at how much time can be saved when you don’t have to hunt down your paperwork every year.
Tax Preparation Tip #4 – Start Saving Your Tax-Deductible Receipts
No one appreciates having to pay more to the IRS than they absolutely have to, but proof of purchase is required for any specific items you may be deducting next year. Remember to keep proof that you indeed earned every tax deduction you claimed. Bonus points if you keep all of these receipts and whatnot in a folder of their own in the place you chose in Tip #3!
Tax Preparation in My Household
If my husband and I followed the tax tips above every year, I could easily save myself a day or two of paperwork searches and headaches each February or March. For 2011, we have already started throwing necessary statements into a tax box. I have not created the appropriate file folders yet though.
For 2011 I have also started paying $50 extra from every paycheck towards our taxes since I am already making more this year than last through blogging. Based on my estimations using their little withholdings worksheet, that extra $1300 a year will keep me from having to pay any penalties for not contributing enough during the year.
How do you prepare for tax day?